The Financial Conduct Authority (FCA) has today taken over regulation of the consumer credit market from the Office of Fair Trading (OFT).
Around 50,000 consumer credit firms are expected to come under the FCA’s remit, of which around 200 will be payday lenders.
Review of debt collection practices
One of the first actions the FCA will take is to carry out a review looking at how high-cost, short-term lenders treat their customers when they are in difficulty.
New figures reveal that people struggled to repay their loan in four out of five cases reported to Citizens Advice since 3 October 2013.
Richard Lloyd, Which? executive director said: ‘This review is another encouraging sign the FCA is showing it means business and won’t tolerate unscrupulous lenders.
‘We’d like to see a ban on excessive fees and charges when borrowers default, which can be as high as £30. These charges should reflect lenders actual costs.’
Go further: What to do if you can’t pay back your payday loan – we outline your options
Payday loans: tougher requirements
As part of our ‘Clean up Credit’ campaign launched in October, Which? has been calling on the FCA to crack down on poor lending and unscrupulous practices across the credit market, and welcomes the new regulator’s recent announcement that payday lenders will be subject to tougher requirements.
This includes a mandatory affordability check on borrowers and preventing lenders from rolling over loans more than twice.
There will also be restrictions on the number of times a continuous payment authority (CPA) can be used.
Go further: 10 ways to pay off your debts – how to minimise the interest you pay on credit cards and loans
A cap on the cost of payday loans?
As part of its regulation, the FCA will continue to engage with the industry to encourage lenders to create a real-time data sharing system.
It will also assess the financial promotions of payday loan companies and move quickly to ban any that are misleading or downplay the risks of taking out a high-cost, short-term loan.
In July, the FCA will consult on a cap on the total cost of credit for all high cost short term lenders, to be implemented in early 2015.